After successive rate hikes, the US Federal Reserve is adopting a ‘wait and see’ approach. High interest rates have yet to turn the tide against high inflation – another rate hike could spur volatile market conditions at a time when investors are still adjusting to a sudden high interest rate environment. The bigger question is whether an interest rate hovering at 5% will slow down the trading of retail securities, and in turn fueling a prolonged recession. The Fed Reserve is no doubt looking into its arsenal of monetary instruments. Rising interest rates can only go so far, and additional action might be warranted should high rates start impacting financial market liquidity.

The European stock market has become accustomed to trading amidst a high-interest rate environment. European stocks have been collectively outperforming US stocks since September 2022, despite the European Central Bank setting interest rates above 3%. Should the Fed Reserve hold strong or increase to near 6%, it could trigger a swing in sentiment from New York to the European stock exchanges.